Speculators are suggesting that Yahoo! can offer 1 cent per minute calling because of their tight relationships with carriers. Don’t believe it. Two years ago, wholesale minutes were 3/4 of a cent. If wholesale minutes are now down to 1/2 cent, Yahoo is earning the same margin on those minutes that any other traditional carrier is earning. That’s the reason SipPhone can offer that price as well. We should expect to see many others follow suit, including Microsoft/MCI with their newly announced 2.3 cent per minute service. A penny per minute will be the new standard.

Some have commented that it’s strange that Yahoo! is rolling out their international call-in service before the US. It’s smart business strategy, and furthermore it’s a strategy that has served Yahoo! well in the past. Who’s the biggest VoIP provider in the world? It’s not Vonage, and it’s not Time Warner. Yahoo’s relationship with Softbank Japan has delivered over 4.5 million customers already, making them the largest. By focusing on underserved markets like France, Germany, Hong Kong, Italy, Singapore and Spain, they’re hoping to have similar impact.

Who will be the big winners and losers?

Vonage: loser. At a penny per minute, Yahoo! calls, if not below Vonage’s cost, are approaching Vonage’s cost. Vonage is a traditional telco without a large and loyal user base. They’re caught between a rock and a hard place. That’s the impact of running large call centers, networks and massive ad campaigns. Yahoo outsources the network. Advantage Yahoo!

Big Telco’s: loser. Check out this free paper from analyst firm Evalueserve on the impact of Skype and Skype-like services on Big Telco. They’re fiddling while Rome burns, focusing on Video to compete with cable incumbents, while core voice services are stripped away. In North America, land-line attrition has reached 10,000 lines per day.

The Prepaid Card industry: loser. The dog-eat-dog world of the prepaid phone card industry has just experienced a seismic shock. Surviving on razor thin margins before, it’s hard to know what they will do now. Only the largest, like IDT, seem likely to survive. The industry knows it too. On a regular basis resumes from former and current prepaid execs hit my inbox as they have started scouting for the next big thing.

Skype/Ebay: winner/loser. The jury’s out. At least in the short term, the prospects of Skype substantially monetizing their customer base via Skype-Out minutes is dimming. More than ever before, Skype must rise to the challenge of building a substantial value-added platform.

The Portals: winner. The portals are the early winners. They’ve just found a new service to monetize their user base with. Ad-funded VoIM clients can help to fuel the price war. DID’s help to make the customer sticky. The winners will be the companies who recognize that the VoIM client is just another platform component in the overall portal platform.

The rest of the Pure-Play VoIP companies: loser. The only hope for these guys is an exit based on some unique piece of technology or a large enough customer base. Portal players can price at or below cost using their ad revenues to backfill. Pure-Play players don’t have that luxury.

Applications Providers: winner. As commodity minutes trend to zero, new services must be introduced. Companies building those services, especially services that span the web and voice networks, will be the emerging late winners. Look for applications providers to emerge, and for consolidation to take place as the portal players snap up the strategic applications vendors. Look for acquisitions that bring core platform components and applications that leverage those components.

IP TV: loser. The internet TV buildout will be capital intensive, and ultimately a low margin business as cable and the telco’s duke it out for supremacy on the small screen. Expect the price war over minutes to impact this roll-out as service providers look for other, more immediate ways to generate incremental revenue from applications.

Gather round folks, and watch the fireworks. Opportunities are being created. Lots of money will change hands before this bonfire is over.

"By focusing on underserved markets like France, Germany, Hong Kong, Italy, Singapore and Spain, theyâ€™re hoping to have similar impact"

I thought i would jump in on this one. France is not an underserved market. It is the opposite, i will not go all the way back to the minitel (http://fr.wikipedia.org/wiki/Minitel) but France Internet market is really competitive. France telecom had the control over phones but the ITSP market is a lot more competitive with Free, neuf telecom, cegetel…the price war on internet keeps going (15E for 20M ADSL/mth) and ITSP had and have aggressive strategy to roll out new services like VoIP and IPTV. France is leading europe for VoIP adoption because ITSP made it affordable and easy to use for consumers with all in one box (internet, phone and video).
This early roll out and competitiveness could explain why Wengo the VoIP service from neuf telecom has offered prices as low as Yahoo new service for the past 6 months.

If it is the ITSPs drive VoIP in France, it sures looks like it will be the portals in North America

I am not completely convinced the telco's won't simply start prioritizing traffic, so I am not counting them out yet. They don't exactly have a legacy of losing, and with the amount of lobbying power…

Do any of them really get it? by them I mean portal and IM providers. Skype is voice centric, a very small amount of bloat and you can be up and running quickly "it just works" the others are replicating traditional phone service, which is a huge mistake – 2 cents or 1 cent, to be honest I dont' think it matters. It is ease of use, ease of sign up, features and "non telco" thinking that really makes a service usable. I don't think price weighs into it that much. Yahoo doesn't offer an API to integrate hardware, neither does MSN, no conferencing, no sharing of contacts, no integration to other software etc.. essentially no community.

Applications providers are sitting pretty right now, in a race that is won by features – big providers are blind not to recognize what innovative applications bring to the table.

Application providers sitting pretty??? While I agree that differentiating yourself in a commodity market is done by adding "value" (innovation), that doesn't necessarily guarantee commercial success for the app creators. In the PSTN world the "killer apps" were – and still are – Caller ID w/name, and Voice Mail… and don't forget "tone" dialling. Imagine being able to charge 7-10 bucks for each of those features… You'd be rich (you'd be a telco).

That's not likely to happen soon in VoIP world… Features are free. And a killer app is not a feature. The definition of "killer app" is not cool innovation – it's the one thing everyone's willing to pay extra for! In that context I've seen very little true innovation by VoIP app start-ups. The companies that might succeed are the one's with greater vision beyond the features – and yes, I believe Iotum has that potential. By offering an application alters people's behaviour is where you get them hooked. Then they'll pay.

Mitch, you're assuming that Iotum and others like it are going to be chargeable services to the end user. When I say "applications are sitting pretty" it isn't from a 'I am going to subscribe' postition, it is more of a "here is what we can offer you to differentiate.." sales position. Translation – what telco's will pick us up because we are the shizzle and they know it. Applications and the Angel behind them face a huge risk across the board "build vs. buy" if you have users, you win, and win BIG (risk is worth the gamble).. period. Unfortunately this generally comes down to sales and positioning more than technology and development.

Features are free, no argument there. CLID w/name, is slag from the PSTN, not a new alloy..

Hi Andrew – It wasn't my intention to imply that end users would be paying directly for value-added services. The PSTN cash cow features are going – and so is the profit of the telcos and equipment manufacturers (Nortel, Lucent, Alcatel, etc) Take CLID – it was software that ran on proprietary OSs – Nortel's DMS for example… A clid upgrade for a single DMS 100 was $100k!

In the VoIP world the OS are open and interchangeable… also users / subscribers are now very savvy – they know that a "service" that is purely provided by software – costs very little to operate. So you can't charge users for it.

There's two areas in IT that will be able to claim a dollar advantage – 1. user-level communication management and 2. corporate-level process / risk management… (that's ITIL!!! – check out pinkelephant for more info)) So the bottom line is the subscriber pays for a level of network access and will will pay more for a certain level of performance (peformance does not equal bandwidth).

Application developers that will gain momentum are the ones that will demonstrate an ROI tied to a SLA-type value proposition. It's not simple. I's not easy. It can be done!

It's a new generation for "communications service providers" and studies indicate that customers are willing to pay more for network access. The opportunities for startups is immense!!! (Go Alec!)